A happy land where homeowners and homebuilders settle their differences amicably is improbable. Photograph: Geoffrey Robinson /Rex Features

When politicians make a leap in the dark, people get nervous. The coalition has decided to shred Britain's planning laws and there is bound to be much howling. But homes must be built: the question is where they should go. It is good that we are being forced to confront this.

Unread and unenforceable regional spatial strategies have left housebuilding targets stuck in cold cement. Proposed developments face what one cabinet minister described as "machine-gun nests of locals repelling invaders". Recession, the implosion of the mortgage market, and cuts to social housing have slowed things further. Homebuilding has shrunk to 1920s levels. News coverage has been surprisingly calm but there is palpable panic inside government.

To those who already own homes, great riches come. The property market is a closed medieval guild, with those inside it happy to see supply capped. On a wall inside Downing Street I'm told there is a map of the green belt: whether for morning genuflections or for target practice, my source was silent. Meanwhile, land where development is permitted is hoarded, unused, by oligarchic retailers and housebuilders. Tesco has grown fat on its landbanks.

The government wants to break the stranglehold of a system that is bad at planning but good at shackling development. "From today we will expect all bodies involved in planning to prioritise jobs and growth," said the chancellor last week. He added the words "local" and "sustainable" like a ritual incantation, but no one is agreed what these amount to.

Economic liberals in the coalition champion planning reform as a route to social justice, bringing homes to the people. They dismiss the anti-development traditions of their parties as "bananas" – the build-nothing-at-all-anywhere brigade. "People have a bizarrely crude view of green space and think anything with a blade of grass on it is worth preserving," says one minister. "There are lots of boring fields," adds an adviser, daringly: intensive agribusiness being ecologically less diverse than a well-planned suburb or the verges of the M1.

The Campaign to Protect Rural England is alarmed. Shaun Spiers, its director, told me changes to planning policy are "Gordon Brown on steroids". He fears a Treasury-led free for all from which only national parks will be exempt. If so, welcome to the Hampshire megalopolis, and the CPRE will be right to fight. But it isn't what ministers intend.

The planning system is broken, better at blocking than shaping. When building proceeds, a few make a fortune from characterless chunks of suburbia, and nobody else gets a look-in. The uglification of Britain marches on.

Optimists about human nature – and there are many making policy –are cheerful about drawing people into planning. "Localism is not a binary choice for or against something but an ability to shape your environment," says one of the authors of the new National Planning Policy Framework, due in the summer. Perhaps. But if your house backs on to a field, the choice of whether to build on it probably feels a bit binary.

The aim is for communities to agree development plans, determining what sort of things are built, but – and this is the sting – not whether they should be built. "It will take 10 minutes to get planning permission" says one minister.

Some will see this as code for withdrawing local rights. And no one is sure how to resolve the dilemma. What if locals refuse point blank to allow building, or set such stringent criteria that nobody can follow them? Who ensures the plan is being met?

"Exactly how to design a planning system is something we have a few months to work on," one adviser says. There's another pressure too: the Treasury's centralist call for growth. Before the new system has even been written, the chancellor announced a blanket freedom to allow commercial property to be turned into homes and a lifting of rules directing development towards brownfield sites. Many turned out to be back gardens – but not all.

The tension – which applies to so much of coalition policy – is that when the centre lets go, it can no longer pretend to control outcomes. Ministers cannot guarantee the countryside will be protected, or that homes will appear.

There will be inducements. The budget confirmed pilot plans for land auctions, with profits from planning permission shared. If Cambridge were to become a full-on science city – a million-citizen powerhouse of a new economy – residents might never have to pay council tax again. A brave way to share rewards? A cruel blow against the countryside? Or an unsentimental disregard for a dull landscape of drained fens?

I've been struck, talking to ministers, by how open-ended is the future this government contemplates. The agenda is not hidden, but nor are the consequences certain. Ministers want development, and they want locally agreed development – and they hope both will arrive if constraints are kicked away.

So do I. England is greener than we realise. We should fear bad building, not more. Communities, allowed a choice, often make sensible decisions. House prices should be lower. But a happy land where home owners and homebuilders settle their differences amicably is improbable in a nation where people can spend a lifetime squabbling over the height of a leylandii hedge. The politics of property in Britain is fissile material, and I hope ministers know it.